My wife and I have recently had a baby and I want to start looking at life insurance plans to give me peace of mind.
I know I already have some sort of scheme through work but I’m not sure of the details or how this will affect any future policies I might want to take out.
What do I need to ask my employer before I take out life insurance?
– Reader, via email
Many workplaces offer a benefit which pays out a lump sum on the death of an employee
Will Kirkman, of This is Money, replies: Many employers offer what is known as death-in-service, a type of employee benefit which pays out a tax-free lump sum on the death of the employee.
The payout is usually a multiple of the employee’s salary and isn’t dependent on the employee dying in the workplace – as long as they work for the company, it will pay out regardless of when or where they die.
There are a few downsides to these schemes however when compared to traditional life insurance. The benefit will end if you move jobs, and the size of the payout might not be enough for your needs.
For example, it might not be large enough to clear outstanding mortgage debt.
For this reason many people decide to take out additional life insurance cover on top of death-in-service benefit.
In your case, double check with your employer what the size of your death-in-service benefit is.
Once you know this you can plan your personal life insurance policy accordingly, if you feel you need one.
Bear in mind if you move jobs you’ll lose the benefit, so you’ll have to address this if and when you do.
If this is in 20 years’ time, for example, taking a new policy to make up the difference will be a lot more expensive than simply taking a larger policy now.
Take all of this into consideration and think about talking to a financial adviser if you need help figuring what the best way forward is.
|Question||Group life||Personal cover|
|Who owns the policy?||Your employer||You do|
|Who gets the money?||Your beneficiaries||Your estate|
|How much cover do I have?||Your cover will usually be linked to your salary. Eg. four times your salary||You decide when you are buying it|
|Do I need to go for medicals?||Usually not||Quite often|
|Will I be rejected for pre-existing conditions?||Usually not. Most of the time the policy covers all employees regardless of their medical history||You may well be rejected. If they do accept you, they will likely increase your premium|
|How long does it take to get cover?||Cover is automatic, but sometimes only once you’ve worked at the company for a fixed period of time||Anywhere from 20 minutes to several weeks.|
|What happens if I leave my job?||You will usually lose your cover||The policy carries on|
|This table gives the common answers among many insurance policies, but each insurance company sets its own rules which may be different from these|
Sammy Rubin, ex-Vitality Life chief executive and founder of Yulife, says: Life insurance is one of the most popular and appreciated employee benefits around. In fact, around 10 million people in the UK are given life insurance by their employer.
But before going any further, it’s important to understand the difference between the life insurance that your company provides, which is often called death-in-service or group life cover, and the life insurance that you can buy on your own.
Do I need extra cover if my employer already gives me life insurance?
To answer that you need to first understand how much money your family would need if the worst happened.
It is important to cover all bases, so some things to consider can be your mortgage or rent payments, school and perhaps future university fees for your children, and monthly living costs.
Sammy Rubin, chief executive of Yulife
As a rule of thumb, 10 times your salary is usually enough to cover these things.
But remember that you are an individual, just like everyone else, so your needs may well be different.
Taking this into account, it is unlikely that your employer is giving you enough cover to match this.
However, you can ask your manager or HR if you can increase your cover through work.
Before you do get extra cover through work, think about your future at the company. If you leave your job, the cover stops – it is rare for you to have an option of keeping it.
If you can’t get enough cover through work or you want to have a cover that belongs to you, then you should consider buying a personal life insurance policy.
Will Kirkman, from This is Money, adds: When it comes to taking out a personal policy, there are three different ways to buy – online through a price comparison website, direct from a provider or through a qualified financial adviser.
There are several important factors to consider. Cheapest won’t always mean best, you’ll have to think about what the right level of cover is for you, and you’ll have to check what arrangements you may already have through work.
You can read our comprehensive guide to life insurance by clicking here, which covers how much cover you should get, how much you should pay for it, and what the alternatives our.
This is Money has partnered with Cavendish Online, an independent financial adviser firm specialising in life cover, critical illness cover and income protection. To find the cheapest life cover available in the UK you can apply online through This is Money here.
Alternatively, if you’re not sure what cover you need and you want some help, choose one of the options here and an independent adviser will help you find the right deal for you.
THIS IS MONEY’S FIVE OF THE BEST PROTECTION INSURANCE DEALS